Financialization Extreme Money, by Satyajit Das

Satyajit Das has more than 30 years experience as a financial advisor. His book Extreme Money has been described as a moral condemnation of bankers, brokers, traders, speculators, regulators, and elected officials – and described by one contributor at Amazon.com as failing to recognize the contributions of these people. Below is what I take from the book.

People of finance help by lending money. Mr Das for sure is not disputing that. But he is saying that beyond lending money to help people get their projects done, the financial industry has not been doing as much for society as it has been pretending to do and they don't deserve the amount of money that they have been accumulating.

Das includes a quote of Paul Volcker from The Times on December 9, 2009:

I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth – one shred of evidence. (Das, p. 78)

Das claims that the only financial innovation over the past 20 years that impressed Volcker was the automated teller machine.

Das:

Originally, business people invested in factories and businesses that produced and sold things. Now, in the twentieth century, business people sought to make money in ways not necessarily directly linked to the making of things. Speculators can make money from trading oil even if they do not actually produce, refine, or consume oil. They can make money irrespective of whether the oil business is good or bad, the price high or low.

Das describes financial centers as having replaced industrial and trading districts in importance.

The players did not make things or trade goods. Instead, they traded trillions of dollars, euros, yen, bonds, shares, commodities, and derivatives. Much of the activity did not generate true value or represent direct additions to the goods and services produced in the economy. It increased debt and the circulation of money, as well as trading and speculation.

Traditionally banks made their money by giving interest to depositors on their money and charging a greater interest on the money that they lent, pocketing the difference. Competition, according to Das, created lower profit margins with banks pressured to increase their loan volumes to meet investor demands for higher returns. "The race was on to find borrowers." Money was being lent to less creditworthy borrowers. "Then came even more risky loans – subprime mortgages for NINJA borrowers." (In a Ninja loan an applicant had to show only his credit rating, not his income job or assets.) And they began lending to private equity funds and hedge funds.

Extreme Money is published by FT Press – FT standing for the London based Financial Times. Among the many who are praising the book is the economist Nouriel Roubini (Dr. Doom), who writes:

A true insider's devastating analysis of the financial alchemy of the last 30 years and its destructive consequences. With his intimate first-hand knowledge, Das takes a knife to global finance and financiers to reveal the inner workings without fear or favor.